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ECON 310 > Efficiency and Equity > Flashcards

Efficiency and Equity Flashcards

1
Q

How are scarce resources allocated by?

A 
Market price 
Command 
Majority rule 
Contest 
First-come, first-served 
Lottery 
Personal characteristics 
Force
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2
Q

Explain market price

A

When a market allocates a scarce resource, people who get the resource are those who are willing to pay the market price.

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3
Q

Explain command

A

Command system allocates resources by the order (command) of someone in authority.
Ex. boss, dictator

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4
Q

Explain majority rule

A

Allocates resources in the way the majority of voters choose
Ex. Parliament votes to decide to increase the tax rate to the rich, allocate budget in education, etc.

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5
Q

Explain contest

A

allocates resources to a winner (or group of winners)

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6
Q

Explain first come, first serve

A

Allocates resources to those first in line

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7
Q

Explain lottery

A

Allocates resources to those with the winning number or who come up lucky on other gaming systems

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8
Q

Explain personal characteristics

A

Allocate resources to those with the right characteristics

Ex. VIP tickets

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9
Q

Explain force

A

War, theft, government legislation may force the transfer of wealth from the rich to the poor.

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10
Q

What is individual demand?

A

The relationship between the price of a good and the quantity demanded by an individual.

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11
Q

What is market demand?

A

The relationship between the price of a good and the quantity demanded by all buyers.

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12
Q

What is consumer surplus?

A

The excess of the benefit received from a good over the amount paid for it?

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13
Q

How do we calculate consumer surplus?

A

CS= benefit received –the amount paid.
CS from one unit = MB –Price paid.
CS from all units = total benefits –total expenditure

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14
Q

What is marginal cost?

A

The minimum price that a firm is willing to accept. But the minimum supply price determines supply. A supply curve is an MC curve.

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15
Q

What is individual supply?

A

The relationship between the price of a good and the quantity supplied by one producer.

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16
Q

What is market supply?

A

The relationship between the price of a good and the quantity supplied by all producers.

17
Q

What is producer surplus?

A

The excess of the amount received from the sale of a good or service over the cost of producing it.

18
Q

How do we calculate producer surplus?

A

S = Revenue –the total (variable) cost of production.
PS from one unit = price received for that unit –MC of that unit.
On a graph, producer surplus is shown by the area below the market price and above the supply curve, summed over the quantity sold.

19
Q

When is the competitive market efficient?

A

When production is less than the equilibrium quantity, MSB> MSC. In this case, you can increase total surplus by producing more or greater than the equilibrium quantity, MSC> MSB. Production is too much and total surplus can be increased by decreasing production.

20
Q

What is the invisible hand idea?

A

implied that competitive markets send resources to their highest-valued use in society. Consumers and producers pursue their own self-interest and interact in markets. Market transactions generate an efficient—highest valued—use of resources.

21
Q

What is market failure?

A

arises when a market fails to maximize the total surplus (CS+PS). Market failure occurs due to either underproduction or overproduction.

22
Q

How do you calculate market failure?

A

TS = Total benefits –total costs

23
Q

Describe underproduction?

A

If the quantity producer is inefficient and there is underproduction and the total surplus is smaller than its maximum possible level.

24
Q

What is deadweight loss?

A

A measure of inefficiency is equal to the decrease total surplus that results from an inefficient level of production.

25
Q

What are the sources of market failure?

A 
Price and quantity regulations
Taxes and subsidies
Externalities
Public goods and common resources
Monopoly
High transactions costs
26
Q

What is overproduction?

A

When MC > MB

27
Q

Explain price and quantity regulations?

A

If the price is set below the equilibrium price, then that leads to underproduction.

28
Q

Explain taxes and subsidies?

A

Taxes increase the prices paid by buyers and lower the prices received by sellers.
Subsidies do just the opposite.

29
Q

Explain externalities

A

An externality is a cost or benefit that affects someone other than the seller or the buyer of a good.

30
Q

Explain Public goods and common resources

A

A public good benefits everyone and no one can be excluded from its benefits.

31
Q

Explain common resources?

A

Is owned by no one but can be used by everyone.

32
Q

Explain monopolies

A

is a sole producer of a good or service. A monopoly sets a price that is higher than the competitive equilibrium price (where supply = demand) to maximize its profits. As a result, a monopoly produces too little, causing deadweight loss.

33
Q

Explain high transactions costs?

A

the opportunity cost of making trades in a market. When transactions costs are high, the market might underproduce.

34
Q

How are ideas about fairness divided into two groups

A

It’s not fair if the result isn’t fair.
It’s not fair if the rules aren’t fair.
It’s Not Fair if the ResultIsn’t Fair

35
Q

Explain utilitarianism

A

the principle that states that we should strive to achieve “the greatest happiness for the greatest number.

36
Q

What is the symmetry principle?

A

the requirement that people in similar situations be treated similarly.

37
Q

What are the two rules of fairness?

A
  1. The state must create and enforce laws that establish and protect private property.
  2. Private property may be transferred from one person to another only by voluntary exchange.

ECON 310 (5 decks)

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